Question

Selected information from the Blake Corporation accounting records for June follows.

Materials Inventory
BB (6/1)	87,000
	459,000	414,000

Work-In-Process Inventory
Labor	400,000
EB(6/30)	520,000

Finished Goods Inventory
BB (6/1)	289,000
	834,000	831,000

Cost of Goods Sold
		22,000

Manufacturing Overhead Control
	346,000
		346,000

Applied Manufacturing Overhead
		368,000
	346,000
	22,000

Additional information for June follows:

• Labor wage rate was $25 per hour.
• During the month, sales revenue was $1,025,000, and selling and administrative costs were $234,000.
• This company has no indirect materials or supplies.
• The company applies manufacturing overhead on the basis of direct labor-hours.

Required:

a. What was the cost of direct materials purchased in June?

b. What was the over- or underapplied manufacturing overhead for June?

c. What was the manufacturing overhead application rate in June?

d. What was the cost of products completed during June?

e. What was the balance of the Work-in-Process Inventory account at the beginning of June?

f. What was the operating profit (or loss) for June? Any over- or underapplied overhead is written off to Cost of Goods Sold.

Answer 1

SOLUTION:

a. Cost of direct materials purchased in June:

Cost of direct materials purchased in June

$ 459,000

Debit Entry in Inventory Account

b. over- or underapplied manufacturing overhead for June:

Manufacturing Overhead applied in June	$ 368,000	Credit Entry in Applied mfg. Overhead T-Account
Actual Mfg. Overhead costs incurred in June	$ 346,000	Debit Entry in Applied mfg. Overhead T-Account
Over Applied Factory overhead cost in June	$ 22,000	(368000-346000)

It is over applied because applied mfg. Overhead is more than actual mfg. overhead incurred

c.  manufacturing overhead application rate in June:

Direct labour cost recorded in June	$ 400,000
Direct labour wages rate per hour	$ 25
Direct labour hours (DLH) used in June	$ 16,000	(400000/25)
Mfg. Overhead applied in June	$ 368,000	Credit Entry in Applied mfg. Overhead T-Account
Mfg. Overhead application rate in June per DLH	$ 23	(368000/16000 DLH)

d. Cost of products completed during June

Cost of products completed during June

$ 834,000

Debit Entry in Finished Goods T-Account

e. Balance of the Work-in-Process Inventory account at the beginning of June

Cost of Products completed during June	$ 834,000	Debit Entry in Finished Goods T-Account
Less: Cost of Direct Material used in Production	($ 414,000)	Credit entry in Inventory T-Account
Less: Cost of Direct Labour used in Production	($ 400,000)	Debit entry in WIP T-Account
Less: Mfg. Overhead applied in June	($ 368,000)	Credit Entry in Applied mfg. Overhead T-Account
Add: Ending BalanceOf WIP Inventory	$ 520,000	Ending bal entry in WIP T-Account
Balance of WIP Inventory at begining of June	$ 172,000

f. Operating profit (or loss) for June? Any over- or underapplied overhead is written off to Cost of Goods Sold

Particulars	Amount	Amount
Sales Revenue		1,025,000
Unadjusted COGS	831000		Credit Entry in Finished Goods T-Account
Less: Overhead applied COGS	(22000)
Adjusted COGS		809,000
Gross Profit		216,000
Less: Selling and Administrative cost		234,000
Operating Loss for June		(18,000)